Clarks: Made to Last

by Mark Palmer

  At the time of the vote, Clarks was over two thirds owned by the family, with the remainder owned by outside institutions, the Clarks pension fund, employees and ex-employees. A comfortable majority of the family had voted against selling the company, while the vast majority of the non-family had voted in favour of selling.

  An agreement had been made that whatever the result both sides would observe a two-week cooling-off period. The less said the better was the implication – although those involved in what would become a new corporate governance structure began work immediately. Even the media seemed subdued, but perhaps that was simply because a long-standing Quaker family company being sold would have made a better story.

  On 18 June 1993, Dickson wrote his final letter to the Clarks shareholders, confirming that an independent chairman would be appointed in due course as his successor, plus two non-executive directors. In accordance with the SHOES commitments, he said a family shareholder council would be established by 31 October, and that this council would appoint two family members to sit on the main board as non-executive directors by the end of the year at the latest. It was agreed that the board of C. & J. Clark Ltd would not only have fewer family members but would be smaller in general. He confirmed that Harriet Hall was to serve as the shareholder council’s first chairman.

  In addition, and as promised, the company would prepare itself in ‘an orderly way’ for a Stock Exchange listing within five years ‘dependent on a range of factors’.

  Two days later, Dickson announced his resignation.

  Roger Pedder was made non-executive chairman while a new chairman was recruited. Norman Broadbent, the firm of City headhunters, was commissioned to find suitable candidates and arrived at a shortlist of names drawn from the City. None met with the approval of family members on the appointments committee. They did not want a Walter Dickson Mark II and argued strongly in favour of their preferred candidate, Roger Pedder. Then, on 6 November, it was announced that Pedder, who was 52, had been offered the job – and had accepted. Upon his appointment, Pedder stood down as managing director of Pet City, the company he had jointly founded and which went on to be bought by the US group, PetSmart, for £150 million in 1997.

  ‘We knew he had experience as a chief executive and was good at running things, but he had never been a chairman and so it was a risk – a risk we were willing to take,’ says Richard Clark.

  Shortly after Pedder’s appointment, Daniel Clark stood down as a non-executive director after 26 years on the board. He went on to pursue his interests in academia, deriving great pleasure from his research and writing. He gained a Masters in Archaeology (Environment) from London University (Birkbeck) and followed up with a doctorate at Bristol University, where the title of his thesis was ‘Insular Monument Building: A cause of social stress? The case of pre-history Malta’.

  Earlier in 1993, on 23 July, Daniel’s father, Bancroft Clark, had died at the age of 91. Bancroft had always said he hoped there would be no obituaries in the national press following his death, but obituaries duly appeared. The Times called him ‘the Grand Old Man of the British Shoe Industry’ and a ‘giant of a man in all respects’ who would wander the factory floor in a white coat ‘pouncing on the smallest error and ripping up defective shoes with his bare hands’. The Financial Times credited him with developing the famous Clarks foot gauge and said ‘if the shoe fits, wear it’ would be a suitable epitaph for the man who led the company for 25 years.

  Meanwhile, there were no major changes to Clarks’ senior management – not yet, at any rate. John Clothier remained group managing director and Malcolm Cotton was made deputy managing director. In his first Annual General Report, for the year ending 31 January 1994, Pedder announced that despite the ructions earlier in the year, results were an improvement on 1992, with profits before tax of a little over £20 million compared with a virtually break-even position for the previous year.

  Clarks was still a shoe manufacturer, wholesaler and retailer. It had fourteen factories in the UK, five in Australia, three in North America and two in Portugal, and in the UK it had shops trading under the Clarks, K Shoes and Ravel names. But no one was under any illusion that the structure of the company could continue much longer in its current form. Indeed, there was a question mark over Clarks’ whole raison d’être, not least because in Britain there were 25 per cent fewer shoe retailers than five years earlier and the buzz word was ‘discounting’. UK discount stores were claiming a 4 per cent market share, a frightening figure for a quality shoemaker such as Clarks with high overheads, and which itself could only boast 5 per cent of the market, the same percentage at the time as one of its main rivals, Marks & Spencer. But this was nothing compared with what was going on in the USA, where discount and outlet stores were growing at an alarming rate, seizing 8 per cent of the overall shoe market. No wonder, then, that Bostonian, the US business owned by Clarks, recorded profits of under $5 million on sales of $110 million for the year ending January 1993.

  ‘We simply were not competitive,’ says Pedder. ‘It was obvious that the whole notion of the company had to change and become retail-marketing led.’

  But there was one area in which the company was competitive: Clarks Village, the outlet store in Street that was opened in August 1993. John Clothier was the driving force behind this venture – the first of its kind in Britain – assisted on the ground by Chris Pleeth, who worked for Clarks Properties. K Shoes had opened factory shops in Kendal and Doncaster in 1992 and everyone had been pleasantly surprised by the results. This was confirmed when Clarks commissioned a survey of holidaymakers in Cumbria, showing that 66 per cent of those polled put shopping at the top of their list of preferred activities, way above fell walking.

  The factory outlet experience in Street was to be on a bigger scale than in Kendal, and Clothier says his determination to push it through was born, in part, from a moment of frustration.

  ‘I came out of a board meeting one day in a rage over something or other that had been said. I thought the best thing to do was light a cigarette and go for a walk around the block. I passed by the abandoned factories and it was clear we should use them to sell certain lines at discount prices.’

  Both Clothier and Pleeth went on fact-finding tours to the USA, where factory outlet villages often occupied up to 300,000 sq ft of space in vast business parks or dedicated malls. During one of these trips, Pleeth attended what was billed as an ‘Outlet Conference’ in New Orleans, after which he recommended that Clarks Village in Street should have more of a rural atmosphere about it, replete with a sit-down restaurant, outdoor play area and various picnic spots. Shopping at Clarks Village offered a family day out in a rustic environment. The number of visitors predicted for the first year was 850,000 – but this target was reached within just four months.

  Plans were then immediately put in train to expand Clarks Village. The Next to Nothing store was joined soon afterwards by Laura Ashley, Benetton, Thornton’s and Black & Decker, paying no ground rent but giving Clarks a percentage of their takings. In 1995, Clarks Village won an Award for Innovation from the British Council of Shopping Centres.

  Such was its success that the board realised it needed to be run by a management that specialised in such businesses. And it was also agreed that selling the village made financial sense. MEPC, a publicly quoted property company, was the favoured buyer, but the disposal of what was officially called The Factory Outlet Centre Business required an EGM of shareholders. This was held on 21 May 1997 at the Wessex Hotel, within walking distance of Clarks headquarters. In the past, Clarks EGMs had not always been happy events, and on this occasion too there was some opposition to the sale, but in the end it went through with a 75 per cent majority. MEPC paid £80 million for the three factory outlets in Street, Kendal and Doncaster.

  Clarks Village, the first retail outlet centre of its kind in Britain, was opened in August 1993 and is now one of Somerset’s most popular tourist attractions, containing nearly 100 high-qualit
y stores.

  Some commentators speculated that the sale was part of a Clarks strategy leading up to a stock market flotation, given the commitment to float within five years of the 1993 EGM if conditions were right. However, during an interview with the Financial Times a month earlier, Pedder had said Clarks would continue to concentrate on its core business and was not focused on going public:

  The family shareholders are happy, and it is not a subject of debate. We would consider it if market conditions came right and if we felt it was the right time to raise funds for expansion. At the moment we don’t need to.

  Today, Clarks Village is visited by four million people a year and is one of Somerset’s most popular ‘free’ tourist attractions. Marks & Spencer was a new addition to the village in 2002, occupying the former Grove factory, since when the number of stores housed in various buildings just off the High Street has reached nearly 100, with parking for 1,400 cars and 10 coaches. The village is now owned by Hermes and managed by Realm Ltd.

  The sale of Clarks Village was a good example of the newly formed family shareholder council – known officially as the Street Trustee Family Company (STFC) – working effectively. The council takes the form of a company limited by guarantee. Joining involves giving the council power of attorney to vote on behalf of the shareholder’s shares – a block vote, in effect, subject to various safeguards, rather than family shareholders voting individually. Before using the proxies it holds, the council informs all members of the way in which it intends to vote on any issue, allowing members to withdraw their proxy if they so wish.

  Members of the STFC board are elected every four years by the shareholders, with each member of that board requiring the support of shareholders owning 4.5 per cent or more of the equity of C. & J. Clark Ltd. The council’s two nominees on the board of C. & J. Clark Ltd serve as non-executive directors, and communication between the boards of C. & J. Clark Ltd and STFC is channelled through the Clarks chairman, with meetings held four times a year. The shareholder council has its own secretariat paid for by the company.

  ‘I saw my job as keeping the shareholders united and off the management’s back, but at the same time the shareholder council was and is a way of holding the management to account,’ says Harriet Hall, STFC’s first chairman.

  There were family members at the time, however, who feared the shareholder council would be a licence for the different factions to carry on squabbling. This did not happen. Hall says it was ‘immediately encouraging that all those who wanted to sell the company opted to join the council rather than staying outside and sniping. Some people thought that once things had settled down councillors would stop attending, but this has never been the case. In fact, numbers have increased through allowing younger family members to attend so they can gain experience of looking at the company’s performance.’

  The family shareholder council held its first meeting on 5 February 1994. Back row (left to right): Jan Gillett, Tom Clark, Adrian Little, Hugh Clark, Sibella Pedder, Gloria Clark, Ben Messer Bennetts. Front row (left to right): John Aram (secretary), William Johnston, Charles Robertson, Harriet Hall (chairman), Ben Lovell, Sarah Clark, Caroline Pym, Nathan Clark, Cyrus Clark.

  Indeed, in a 2012 survey of family shareholders, one question asked was ‘How long do you intend to be a shareholder of Clarks for?’ The response of 89 per cent of those polled was ‘My lifetime.’

  Hall brought to the role knowledge of family members and a clear focus honed by her legal training. She had been a key figure in the group that had kept the company independent, and so had a lot to lose if the council did not do its job.

  John Aram, who had worked at Clarks for more than twenty years, was chosen as the STFC’s first secretary. He is unstinting in his praise for Hall, saying that ‘many people thought the council was doomed to fragment’, but that she ‘somehow kept all the factions working harmoniously together – an extraordinary achievement’.

  From the council’s inception, it was important that the past bickering among and interference from family members did not obscure the fact that serious and legitimate concerns about the future of the company had to be addressed – and quickly. ‘I knew that the board and management must be clear that shareholders as a united force required action to restore the company to profitability,’ says Hall.

  Family firms on the scale of Clarks were thin on the ground in Britain by the mid-1990s – a theme that had been picked up by BBC Radio 4’s In Business programme on 1 May 1994. Pedder was invited to the studio and was asked by the presenter, Peter Day, ‘Don’t you find this family company a difficult one to manage?’

  Pedder replied, ‘I think it obviously can be because of the troubles we’ve had. But if you look on the positive side, it has tremendous dedication, both from the family and from the workforce, and has an identity of many years of dedication which other companies probably don’t enjoy.’

  ‘Yes, but if you’re trying to manage a company like this then the family tends to get in the way,’ suggested Day.

  ‘Not necessarily,’ replied Pedder. ‘I think it is a misapprehension to think the family’s always in the way … I think the difficulty is to both own and manage directly. And it’s that which we’ve sorted out over the last year.’

  Sir John Harvey Jones, the businessman well known at the time for his Troubleshooter TV series, was asked to contribute to the programme and pronounced that ‘the transformation of family firms in this country is the key to our economic revival’.

  In the case of Clarks that transformation was still to come, and perceptions of the company remained unflattering. For example, Janet Street-Porter, then head of the BBC’s youth programming, was quoted as saying that the corporation for which she worked was in danger of becoming the ‘Clarks shoes of the multimedia world, something that your mother would buy for you but you’d never choose for yourself’.

  Meanwhile, Pedder, who had always taken the view that poor management was as much to blame for the Clarks slump as rising costs and general market conditions, found himself telling shareholders that 1994 had been a ‘real disappointment’, with net profits before tax down on 1993. But he was also able to assure them of moves that were aimed at arresting the slide.

  Two factories – St Peters in Radstock, Somerset, and Marlinton, in West Virginia, USA – were to be closed, and further cuts were planned in 1995 to make the company ‘better focused and highly cost effective’. The St Peters factory had been the largest single employer in the town (population 5,000) for almost forty years, its closure representing a dark day for the local community. The decision was also taken to close the K Shoes offices in Kendal and merge the operations of Clarks and K in Somerset. This meant the arrival in Street of Peter Bolliger, who had been appointed managing director of K Shoes in the summer of 1994.

  Bolliger was a big beast in the shoe jungle. Born and raised in Basel, Switzerland, his CV included a period with the respected Swiss shoe business Bally, before he moved to South Africa to join a footwear company associated with Carvela shoes, now part of the Kurt Geiger stable. It was while in South Africa that he crossed paths with Mohamed Al-Fayed, the owner of Harrods, who wanted to bring him to London as his new managing director.

  ‘He told me he liked the Swiss and that a lot of his money was in Switzerland,’ says Bolliger. ‘He also said he liked shoe retailers.’

  Bolliger stayed at Harrods five years, eventually falling out with Al-Fayed in spectacular, but not unusual fashion. When he announced he was leaving, Al-Fayed’s then director of public affairs, Michael Cole, put out a statement stressing that Bolliger’s departure was ‘not voluntary’. Then, referring to Al-Fayed’s unique proprietorial style, Bolliger was quoted by the Mail on Sunday on 24 April 1994 as saying: ‘You simply can’t have two kings in an organisation like Harrods … I’m confident I will get another job … I know President de Klerk [of South Africa] and he’d be grateful for my skills.’

  When he came to Street from Kendal, Bolliger w
as initially put in charge of the women’s division and was ‘quite anxious because nothing in Street seemed to have changed,’ he says. ‘The old guard was still there and there was a lot of talk about what we should do but not a great deal about how to go about it.’

  Pedder was about to make moves to change that. He realised only too well that the issue of Clarks’ competitiveness had still not been properly addressed – and he knew that tinkering at the edges was not the answer. He was well aware that the wage gap between Clarks’ employees and their Third World counterparts could not be bridged. A Clarks factory worker in the West Country made on average £15,000 a year; a worker in India made £300. This glaring disparity became all too evident when Pedder and Dudley Cheeseman, the Clarks production manager, flew to India towards the end of 1994 looking at factories in Ambur, the capital of India’s shoemaking, in the south of the country. In one factory, they noticed men’s shoes with Marks & Spencer labels in the footbeds. Pedder asked what was the factory price for the shoes and quickly worked out that if Clarks were to produce something similar in the UK, it would have to charge customers £34.99 a pair to stand any chance of covering its costs and making a small profit. M&S was selling them at £29.99. The owner of the factory then asked if they wanted to see another factory nearby, which was using equipment inspired, as it happened, by machinery used by Clarks back at home.

  ‘Who are you making these for?’ asked Pedder, on seeing rows of wellmade casual shoes.

  ‘Marks & Spencer, of course,’ said the owner.

  The Indian trip convinced Pedder of the need for change at the top of Clarks, and so, with a view to bringing in a new CEO, he stood Clothier down as chief executive with effect from January 1995, bringing to an end the Clothier family’s long day-to-day association with the company.